Oblicon Reviewer PDF

OBLIGATIONS AND CONTRACTS 2011 CAVEAT LECTOR: If something is erroneously written, please consult the textbooks written by authorities like Tolentino, De Leon, Jurado and Paras. I created and used this material, and fortunately passed the subject. I found some errors before but was not able to correct them due to the loss of my hardcopy. Use it at your own discretion. OBLIGATION

- Is a juridical necessity to give, to do or not to do. - Is a juridical relation whereby a person (creditor) may demand from another (debtor) the observance of a

determinate conduct, and, in case of breach, may obtain satisfaction from the assets of the latter. Correlative right:

- Credit: the right to demand the object of the obligation - Debt: the duty to give, to do or not to do

Classification of Obligations: 1. Civil Obligations - Obligation which if not fulfilled when it becomes due or demandable may be enforced in court through

an action. 2. Natural Obligations - Obligation which cannot be enforced by court action but which are binding on the party who makes

them, in conscience and according to equity and natural justice. - i.e. if prescriptive period lapses, the voluntary payment of the debtor and retention of payment by the

creditor 3. Moral Obligations - Duties of conscience completely outside of the field of law

Civil and natural obligations, distinguished: - Civil obligations derive their binding force from positive law, while natural obligations derive their binding

effect from equity and natural justice. - Civil obligations can be enforced by court action or the coercive power of public authority, while the

fulfillment of natural obligation cannot be compelled by court action but depends exclusively upon the good conscience of the debtor.

Natural obligation distinguished from: - Moral obligation: natural obligation produces juridical effects such as the right to retain what has been

voluntarily paid by the debtor. - Civil obligations: natural obligation does not give rise to an action to compel its performance

Obligation enforceable by: - Civil: action - Moral: conscience - Natural: obligation without sanction

ELEMENTS/REQUISITES OF CIVIL OBLIGATIONS 1. Subjective Elements: active subject, passive subject 2. Objective Elements: prestation, efficient cause/legal tie or vinculum juris

Subjective Elements: 1. Active Subject: who has the power to demand the prestation, known as the obligee or creditor 2. Passive Subject: who is bound to perform the prestation, known as the obligor or debtor

Objective Elements: 1. Prestation: the subject matter of the obligation

Requisites of Prestation:

a. It must be possible, physically and juridically b. It must be determinate, or, at least, determinable according to pre-established elements or criteria c. It must have a possible equivalent in money Kinds of Prestation: a. Real obligation:

- The obligation to give - Is one in which the prestation consists in delivery of a movable or an immovable thing, in order to create

a real right, or for the use of the recipient, or for its simple possession, or in order to return it to its owner.

- Examples are the obligations to deliver the thing in contracts of sale, deposit, lease, antichresis, pledge, and donation. b. Personal obligation: the obligation to do or not to do

1. Positive personal obligation: - obligation to do - includes all kinds of work or services - in some cases, it may involve some work on the part of the debtor, whether it be physical or mental, such as in contracts of employment or professional services; but in other cases, the essence of the act may not be such, but merely the necessity of concluding a juridical operation, such as, when a person promises to give a bond.

2. Negative personal obligation: - obligation not to do - consists in abstaining from some act, such as the duty of a person not to create a nuisance on his property. - it includes prestation not to give, both being negative obligations.

2. Efficient cause: (vinculum juris or juridical tie) the reason why the obligation exists - Creates the obligation itself between debtor and creditor, and define the object/prestation demandable

from one another 1. By law: such as relation of husband and wife giving rise to the obligation to support 2. By bilateral acts: such as contracts giving rise to obligations stipulated therein 3. By unilateral acts: such as crimes and quasi-delicts

SOURCES OF OBLIGATIONS (efficient cause):

1. Law - The law cannot exist as a source of obligations, unless the acts to which its principles may be applied

exist. - But once those acts or facts exist, the obligations arising therefrom by virtue of express provisions of the

law are entirely independent of the agreement of the parties. - Such obligations and their correlative rights are governed by the law by which they are created. 2. Contracts - Meeting of minds between two parties whereby one is bound to do, to give, not to do or not to give. - Created by mutual consents, without such no contract exists. - The terms of the contract should not be contrary to law, morals, good customs, public policy, or public

order. - If the contract does not violate any of the aforementioned limitations, it should be given effect,

notwithstanding the absence of any legal provision at the time it was entered into which governs it.

OBLIGATIONS AND CONTRACTS 2011

3. Quasi-Contracts - Is a juridical relation which arises from certain lawful, voluntary, and unilateral acts, to the end that no

one may be unjustly enriched or benefited at the expense of another. - Kinds of Quasi-contract:

a. Negotiorum gestio (unauthorized management) - When a person voluntarily takes charge of anothers abandoned business or property without the

owners authority. Reimbursement must be made to the gestor for necessary and useful expenses, as a rule.

- The gestor must continue in managing the business or property until he is fired or officially appointed by the owner of property.

- The gestor is not entitled to use the property personally but entitled for reimbursement. b. Solutio indebiti (undue payment)

- When something is received when there is no right to demand it, and it was unduly delivered thru mistake. The recipient has the duty to return it.

4. Delicts - Criminal (public aspect), civil (private aspect) - Twin liability except for victimless crimes - How civil liability is enforced:

a. Restitution: restoration of the thing itself b. Reparation: reparation of the amount of damage, considering its price and sentimental value c. Indemnification: giving compensation for loss or for consequential damages caused to the injured

party and his family or even a third person.

Criminal Liability Civil Liability

1. RPC Conviction Yes Yes, through reparation, restitution or indemnification

2. Acquittal

a. Reasonable doubt No Yes, through preponderance of evidence

b. Innocence/Non-authorship

No No

c. Justifying circumstance No No, except avoidance of greater evil

d. Exempting circumstance No Yes, through guardian or person exercising parental authority

3. Dismissal due to violation of rights i.e. double jeopardy

No Yes, either dependent or independent civil action

5. Quasi-Delicts - Art. 2176, whoever by act or omission causes damage to another, there being fault or negligence, is

obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is quasi-delict.

- Damnum absque injuria (loss without injury): i.e. self inflicted damages such as when plaintiff cannot attribute damages to anyone except himself because the injury is self-inflicted.

- Negligence: is the failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury.

- Test of Negligence:

a. A duty on the party of the defendant to protect the plaintiff from the injury of which the latter complains.

b. A failure to perform that duty. c. An injury to the plaintiff through such failure.

- Requisites of Liability for Quasi-delict: a. That there exists a wrongful act or omission imputable to the defendant by reason of his fault or

negligence b. That there exists a damage or injury, which must be proved by the person claiming recovery c. That the negligence or fault is the proximate cause of the damage or injury.

Liability of employer for quasi-delict or crime of employee: 1. The liability of the employer for the fault or negligence of his employee on quasi-delict is PRIMARY, he

can be sued directly by the injured party, and after he has paid the damages to such injured party he can in turn recover from his employee the amount paid by him.

- Liability based on Art 103 of RPC is SUBSIDIARY; that is, the employee must have first been convicted and sentenced to pay a civil indemnity, and it must be shown that he is insolvent in order that the employer may be held liable.

2. In case of quasi-delict of an employee, the employer can avoid liability by proving that he exercised the diligence of a good father of a family to prevent damage.

- While in the case of crime committed by an employee, the subsidiary liability of the employer is absolute and cannot be avoided by proof of such diligence.

3. In quasi-delicts, all employers whether they are engaged in some enterprise or not, are liable for the acts of their employees including household helpers

- While in crimes, the employer is liable only when he is engaged in some kind of business or industry. Quasi-contract distinguished from other sources:

- Delict: The act giving rise to quasi-contract must be lawful, thereby distinguishing it from crime in which the act or omission is unlawful.

- Quasi-delict: Quasi-contract must be voluntary unlike in quasi-delict which is based on fault or negligence or mere lack of foresight.

- Contract: Quasi-contract must be unilateral, unlike in contract in which there are two parties who come to an agreement.

Quasi-delict and crime, distinguished: 1. As to the nature of the right violated: - The right violated in quasi-delict is a private right; in a crime, the right violated is a public right. - Quasi-delict is a wrong against the individual, while crime is a wrong against the state. 2. As to the condition of the mind - Criminal intent is necessary for the existence of the criminal liability because without the same there can

be no crime; In quasi-delict criminal intent is not necessary. 3. As to legal basis of the liability - Crimes are not as broad as quasi-delicts, because an act can be punished as a crime only when there is a

penal law clearly penalizing it, while there is quasi delict in any act or omission wherein fault or negligence intervenes.

4. As to liability for damages - Every quasi-delict gives rise to liability for damages to the injured party, but there are crimes from which

no civil liability arises such as in contempt, gambling, violations of ordinances and jaywalking. 5. As to the form of redress - In crime, because the offense is against the state, the form or redress is fine or imprisonment, or both.


- In quasi-delicts, because the offense is against the individual, the form of redress is reparation of the injury suffered by the injured party.

6. As to the amount of evidence - In crimes the proof of guilt must be beyond reasonable doubt whereas in quasi-delict the proof of

negligence need be only by preponderance of evidence. 7. As to compromise - Criminal liability can never be compromised, but liability from quasi-delict can be compromised as any

other civil liability.

NATURE AND EFFECT OF OBLIGATIONS Fundamental Rights:

- No need for statutory law to enforce such right Statutory Rights:

- Either created by law or recognized by law a. Created by law: duty and obligation of other party is derived from the law itself b. Recognized by law: provisions of law merely supplement the original source of rights such as those

conferred by stipulations of contracts - Either real rights or personal rights

a. Real rights: - enforceable and demandable against the whole world - the power belonging to a person over a specific thing, without a passive subject individually determined,

against whom such right may be personally exercised. b. Personal rights:

- enforceable and demandable against a particular person - the power belonging to one person to demand of another, as a definite passive subject, the fulfillment of

a prestation to give, to do or not to do. REAL OBLIGATIONS (to give/deliver)

- The creditor may demand from the debtor transfer or conveyance of ownership or merely possession of a thing or where the performance of prestation creates real rights or right to return.

Need of Tradition or Delivery: - From the time the obligation to deliver a determinate thing arises, the creditor has only a personal right

to the thing itself and to the fruits thereof. - The ownership of things is transferred not by mere agreements but by delivery. - The creditor, therefore, does not acquire any real right over the thing except from the time it is delivered

to him. Modes of Delivery:

1. Actual Delivery: - Physical transfer of the thing from the creditor to the debtor - Where physically, the property changes hands 2. Constructive Delivery: - Where the physical transfer is implied.

a. Symbolic Delivery: as when the keys of the car are given as graduation gift. b. Formal Delivery: execution of public instrument selling land. c. Traditio Longa Manu: delivery by mere consent or pointing out of the object d. Traditio Brevi Manu: delivery by the short hand; the kind of delivery whereby a possessor of a thing

not as an owner, becomes as owner

- e.g. When a tenant already in possession buys the house he is renting. e. Traditio Constitutum Possessorium: the opposite of brevi manu; thus, the delivery whereby a

possessor of a thing as an owner, retains possession no longer as an owner, but in some other capacity

- e.g. When a house owner, who sells a house, but remains in possession as tenant of the same house. Generic Real Obligation/Indeterminate Thing:

- thing to be delivered must be consistent with the intent/purpose of the parties; neither superior nor inferior in quality.

- Generic Thing: one that is indicated only by its kinds, without being designated and distinguished from others of the same kind.

- In the obligation to deliver a generic thing, the object due is DETERMINABLE; the moment it is delivered, it becomes determinate.

- Limited Generic Obligation: when the generic objects are confined to a particular class. Specific Real Obligation/Determinate Thing:

- Determinate or specific thing: one that is individualized and can be identified or distinguished from others of its kind a. To Preserve: Bonus Pater Familias b. To Deliver the Thing Itself c. To Deliver the Fruits d. To Deliver Accessories and Accessions

To Preserve:

- In preserving the thing, the law requires the debtor to exercise the diligence of a good father of a family. - Ordinary diligence unless other degree of diligence is required in contract. - In depositum, commodatum, and common carrier, extra-ordinary degree of diligence is required. In this

case, simple negligence already amounts to breach of contract. - The law prohibits stipulations that no diligence will be provided at all.

To Deliver the Thing Itself: - The thing to be delivered is not susceptible to substitution, even if the substitute is greater in value,

unless the parties agree to the same. To Deliver the Fruits:

- The creditor or obligee, in an obligation to deliver a determinate thing, is entitled to the fruits from the time the obligation to deliver arises.

- Moment when obligation arises: a. In obligation arising from law, quasi-delicts, quasi-contracts, and crimes, the specific provisions of

law applicable to the obligation determine when the delivery should be made. b. In obligations which are subject to a suspensive condition, the obligation to deliver arises from the

moment the condition happens. c. When there is a suspensive term or period for the performance of the obligation, the obligation to

deliver arises upon the expiration of the term or period. d. When there is neither term nor condition, the obligation to deliver arises from the perfection of the

contract or the constitution or creation of the obligation. To Deliver Accessories and Accessions:

- Accessories: those joined to or included with the principal for the latters better use, perfection, or enjoyment.

- Accessions: additions to or improvements upon a thing. This includes alluvium (soil gradually deposited by the current of a river on a river bank) and whatever is built, planted or sown on a persons parcel of land.


- Everything that is attached, naturally or artificially, to the principal thing, as well as that which serves to complete it, even if not attached to it, must be delivered together with it.

- Even when the accessions and accessories have been temporarily separated, they must be delivered, such as when doors or windows of a house are removed for repairs

- The aforementioned rule is qualified by the contrary intention of the parties. When to deliver:

1. In cases of law, quasi-delict, quasi-contract and delict: time specified by law or final judgment 2. In contracts:

a. Pure obligation: immediately upon demand b. Suspensive condition: when condition is fulfilled c. Suspensive period: upon arrival of the said period

Parties to Delivery: a. Creditor (party to contract, party who received): - The creditor may not be the same identical persons b. Debtor (party to contract, party who delivers): - Successors-in-interest, heirs, assignees

PERSONAL OBLIGATIONS

1. Positive Personal Obligation (to do) 2. Negative Personal Obligation (not to do)

Positive Personal Obligation: - When the debtor does not comply with an obligation to do, the creditor is entitled to have the thing done

in a proper manner, by himself or by a third person, at the expense of the debtor. - The court has no discretion to merely award damages to the creditor when the act can be done in spite of

refusal or failure of the debtor to do so. - The debtor cannot be subjected to force on his person to compel him to perform his obligation. There is

no imprisonment for debt. - If only debtor can do: damages, indemnification - If others can do the same: others will do in expense of the debtor

Negative Personal Obligation: - Aside from undoing what is done in violation of the prohibition (Art. 1168), the debtor can be held liable

for damages. - In other cases, it is impossible to undo the thing, either physically or legally, or because of the rights of

third persons, or for some other reason. In these cases, the only feasible remedy is INDEMNIFICATION for the damages caused.

BREACH OF OBLIGATIONS

I. DEFAULT (MORA) II. FRAUD (DOLO) III. NEGLIGENCE (CULPA) IV. CONTRAVENTION OF THE TERMS

DEFAULT (MORA):

- Delay in the fulfillment of obligations; it is non-fulfillment with respect to time. - There can be delay only in positive obligations; but there can be no delay in negative obligations. - Begins from the moment the creditor demands the performance of the obligation

Kinds of Mora: 1. Mora solvendi: default on the part of the debtor

a. Mora solvendi ex re: debtors default in real obligations (to give) b. Mora solvendi ex persona: debtors default in personal obligations (to do)

- There is no mora solvendi in negative obligations (one cannot be late in not doing or giving) - There is no mora in natural obligations - There is legally no delay (mora solvendi) if this is caused by factors not imputable to the debtor Requisites for mora solvendi: a. That the obligation be demandable and already liquidated b. That the debtor delays the performance c. That the creditor requires the performance judicially or extra-judicially

Need for Demand: - Default generally begins from the moment the creditor demands the performance of the obligation. - Without such demand, judicial or extra-judicial, the effects of default will not arise. - Demand is generally necessary even if a period has been fixed in the obligation. - Demand is also required on contracts of loan, mortgage and sale. When Default Begins: - Extra-judicial demand before filing of complaint: from the date of such extra-judicial demand. - No evidence of extra-judicial demand: from the filing of complaint. Nature of Demand: the demand must refer to the prestation that is due and not to another Demand Not Required: a. Where there is an express stipulation to that effect - The intent of the parties to constitute the debtor in delay upon the maturity of the obligation even

without demand, must clearly appear in the agreement. b. Where the law so provides c. When the period is the controlling motive or the principal inducement for the creation of the obligation - Making of wedding dress, if the wedding is scheduled at the time the dress is due. - Agricultural contracts where implements are needed at a particular time. d. Where demand would be useless - When the impossibility is caused by some act or fault of the debtor, such as when he is absent or is in

hiding, or has already disposed of the thing which is to be delivered. - When the impossibility is caused by fortuitous event, but the debtor has bound himself to be liable in

cases of such events. e. When the obligor has expressly acknowledged that he really is in default - There must, however, be an express recognition of the default and not merely requests for extension of

time to perform. - In (a) and (b), it is not sufficient that the law or the obligation fixes a date for performance; it must

further state expressly that after the period lapses, default will commence. Effects of mora solvendi: a. When it has for its object a determinate thing, the delay places the risks of the thing on the debtor b. He becomes liable for damages for the delay Interest on liability: - If based on contract: interest should be based on stipulations as long as the same is not unconscionable - If based on judgment: based on legal rate 12% or 6% (other monetary obligation) per annum


2. Mora accipiendi: default on the part of the creditor - The delay in the performance based on the omission by the creditor of the necessary cooperation,

especially acceptance on his part. Requisites of mora accipiendi: a. An offer of performance by the debtor who has the required capacity b. The offer must be to comply with the prestation as it should be performed c. The creditor refuses the performance without just cause Effects of mora accipiendi: a. The responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence b. The debtor is exempted from the risks and loss of the thing, which automatically pass to the creditor c. All expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable

to the creditor d. If the obligation bears interest, the debtor does not have to pay the same from the moment of the mora e. The creditor becomes liable for damages f. The debtor may relieve himself of the obligation by the consignation of the thing 3. Compensatio morae: when in a reciprocal obligation both parties are in default; here it is as if neither is

in default - Applicable only on reciprocal obligation; both parties are required to perform prestation with one

another. - If one party complied, then compensatio morae is converted to mora solvendi or mora accipiendi - If just MUTUAL obligation, then only mora solvendi or mora accipiendi can occur. Reciprocal obligations: - The fulfillment by the parties should be simultaneous unless otherwise provided. - Reciprocal obligation is bilateral obligation based on SAME source whereas mutual obligation is bilateral

obligation based on DIFFERENT sources. - The fulfillment of one party is conditioned in the fulfillment of the other party. - Where both are in default, their respective liability for damages shall be offset equitably.

Cessation of Mora:

1. Renunciation by the creditor a. Express b. Implied, when after delay has been incurred, the creditor grants an extension of time to the debtor

or agrees to a novation of the obligation 2. Prescription

FRAUD (DOLO):

- The deliberate and intentional evasion of the normal fulfillment of obligations. - Fraud, as ground for damages under Article 1170, implies some kind of malice or dishonesty and it cannot

cover cases of mistake and errors of judgment made in good faith. - The element of intent, and not degree of actual harm done is the test.

Dolo Incidente - Causes breach of obligation and committed in non-performance of pre-existing obligations

Dolo Causante - Involves fraud in obtaining consent of one party and results to a VOIDABLE contract - Liability based on fraud cannot be extinguished by both party, but it can be mitigated.

FRAUD (DOLO) NEGLIGENCE (CULPA)

There is a DELIBERATE intention to cause damage. Although VOLUNTARY (that is, not done thru force) still there is NO DELIBERATE intention to cause damage.

Liability arising from dolo CANNOT be mitigated or reduced by the courts.

Liability due to negligence may be reduced in certain cases.

Waiver of an action to enforce liability due to FUTURE FRAUD is VOID.

Waiver of an action to enforce liability due to FUTURE CULPA may in a certain sense be allowed.

NEGLIGENCE (CULPA):

- Is simply the absence of due care required by the obligation Negligence as Question of Fact:

- No fixed standard of diligence applicable to each and every obligation. - Each case must be determined upon its particular facts and circumstances, and the degree of diligence

required for the performance of an obligation must depend upon the circumstances of the particular obligation.

Diligence: - Required by the nature of obligation and corresponds with the circumstances of the persons, of the time

and of the place. Degrees of Diligence:

1. Extra-ordinary diligence (at most diligence) - Applicable to common carriers, commodatum, banks in handling money and property, and public utility

such as telecommunications - SLIGHT NEGLIGENCE will already result to breach of obligation 2. Ordinary diligence - Common standard - ORDINARY NEGLIGENCE will result to breach of obligation 3. Simple or slight diligence - No provision of law to support such but it can be stipulated - EXTRA-ORDINARY NEGLIGENCE will result to breach of obligation

Kinds of Negligence: 1. Culpa Contractual - Is the fault or negligence of the debtor as an incident to the fulfillment of an existing obligation. - Negligence in the performance of pre-existing obligation from a perfected contract. - Only the parties of the contract may be liable for negligence - Action is purely civil in character - If other party is a juridical person, apply the principle of agency, employee is the agent of principal,

negligence of the employee is negligence of the principal. - Respondiat superior (master servant): negligence of the employer is the negligence of employee since

the former has control to the latter. - Defense of a good father is not a valid defense. - Only proof needed is the breach of contract; the defense of diligence may mitigate 2. Culpa Aquiliana - Is the fault or negligence which constitutes an independent source of obligation between parties not

previously bound. - Quasi-delict founded on negligent act or omission - The party who committed the negligent act will be solely and principally liable.


- The employer is primarily liable to the impaired party upon proof of the negligence (negligence in supervision and selection).

3. Culpa Criminal - Negligence punishable by law as crime:

a. Reckless imprudence b. Simple negligence

- If there are several accused, the liability is solidary. - Writ of execution must be issued to satisfy the civil liability attached to a property of party. - If the accused has no property, the guardian/employer will be liable civilly. (subsidiary liability for

employer under RPC) - Even if the employer is not himself the accused, upon insolvency of the employee, the former is liable. - Defenses for Employers:

a. Absence of employer-employee relationship b. Crime was not committed by the accused-employee in the discharge of his function. c. Prove that employee is not insolvent

CCon, CAqu, CCrim, Distinguished: - In CAqu and Ccon, the negligence is direct, substantial and independent cause - CCrim, reasonable doubt; CAqu and CCon, preponderance of evidence - CAqu, defense of diligence; CCrim and CCon, such is not valid.

Negligence, illustration: - VL Bus No 1234, Driver X; Victims: Passenger A, Pedestrian B - For A:

a. Pp v. X (reckless imprudence resulting to physical injuries) b. Pp v. VL (contract of common carrier) c. Pp v. VL & X (culpa aquiliana)

- For B: a. Pp v. X (reckless imprudence resulting to physical injuries) b. Pp v. VL & X (culpa aquiliana)

- Subsidiary liability of VL is applicable when the employee is convicted - Action against VL is preferable due to its solvency compared to X.

CONTRAVENTION OF THE TERMS Examples:

- Prestation to do: not done or poorly done - Delay by a month in the delivery of cargo

REMEDIES IN CASE OF BREACH

I. SPECIFIC PERFORMANCE II. RESOLUTION/RESCISSION III. DAMAGES IV. EXHAUSTION OF ALL PROPERTIES OF DEBTOR V. ACCION SUBROGATORIA VI. ACCION PAULIANA

SPECIFIC PERFORMANCE - Through actions. - Not all obligations are covered, like in prestation to do because the same will amount to involuntary

servitude. - Whether the object of the obligation is determinate or generic, the creditor has the right to ask that the

same be performed. - In case of generic objects, the delivery of any thing belonging to the species stipulated will be sufficient;

hence, if the debtor does not make the delivery, the creditor can demand that things of the kind agreed upon be delivered to him at the expense of the debtor, and the latter cannot avoid the obligation by paying damages if the creditor insists on the performance.

- An action for specific performance implies that its basis is a contractual relation between plaintiff and defendant.

RESOLUTION/RESCISSION

- Rescission under Art. 1191 of the Civil Code is an action for resolution and not in a sense as it is used in defective contract.

- Applicable only in reciprocal obligations i.e. negotiorum gestio, contract of lease, contract of sale. - The right to rescind is inherent to parties in reciprocal obligations because the performance of prestation

by one party is contingent/dependent to the performance of other party. - The power to rescind is given to the injured party. - When one party fails to comply with his obligation under a contract, the other party has the right to

either demand performance or ask for the resolution of the contract. - Where both parties have committed a breach of obligation and it cannot be determined who was the first

infractor, the contract shall be deemed extinguished and each shall bear his/its own damages. Declaration of Rescission:

- If the obligation has not yet been performed, extra-judicial declaration of resolution or rescission by the party who is ready and willing to perform would suffice; he can refuse to perform if the other party is not ready and willing to perform.

- If the injured party already performed such as the property has already been delivered to the other party, he cannot by his own declaration rescind the contract and reacquire title to the property, if the other party opposes rescission. In such case, court action must be taken, and function of the court is to declare the rescission as properly made, or to give a period to the debtor in which to perform.

- Hence, if the debtor impugns the declaration of extra-judicial declaration of rescission, it shall be subject to judicial determination. But where the other party does not oppose or impugn the extra-judicial declaration of rescission, such declaration will produce legal effect.

Not Absolute Right: - The right to resolve or rescind is not absolute. - The court is given a discretionary power to allow a period within which a person in default may be

permitted to perform the stipulation upon which the claim for rescission of the contract is based. Requisite for Action for Resolution

1. Reciprocal obligation - Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and

a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. - They are to be performed simultaneously, so that the performance of one is conditioned upon the

simultaneous fulfillment of the other. 2. Complete performance of the aggrieved party or at least substantial compliance 3. The other party committed substantial breach, not trivial or slight only like 10-day delay of delivery


- There is substantial breach if the non-performance of obligation defeats the very rights of the other party for which the obligation is based.

- Rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement.

4. The plaintiff, for the action to prosper, should not be guilty of breach 5. The subject matter of the obligation is not yet passed to an innocent third person - Purpose of action for resolution: status quo ante - The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created,

the extinction having a retroactive effect. - The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status

before the celebration of the contract. - Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which

they have respectively received and to place each other as far as practicable in his original situation. Rescission not possible: - If restitution and restoration to status quo ante is not possible because it will prejudice the rights of third

party, the only remedy left is damages or specific performance. - Restitution and specific performance are alternative remedies, only one can be chosen. - Even if the aggrieved party chose restitution but the same is impossible, the court can still order specific

performance. DAMAGES

- Action for damages may be separate or independent action, or a conjunctive action to the other remedies.

- Damages must be proved except in MORAL DAMAGES on rape cases and CIVIL INDEMNITY on death cases.

Types of Damages (MENTAL): 1. Moral damages: to compensate victim for mental anguish, sleepless nights, anxiety, etc. 2. Exemplary damages: punitive damages, set the defendant as example to society and serve as a deterrent

for the performance of similar act. 3. Nominal damages: awarded for breach of right, when the right is known and established. 4. Temperate damages: awarded when amount of damages cannot be determined but the injury is obvious. 5. Actual damages: all necessary related expenses and lost or foregone income 6. Liquidated damages: arise from contractual relations which are agreed upon by both parties. No need to

prove damages as long as contract is clear. EXHAUSTION OF ALL PROPERTIES OF DEBTOR

- Applicable only when the obligation is originally monetary or pecuniary in nature (money or property) - The creditor has the right to look at the asset of the debtor for the satisfaction of the debt - The property of the debtor is subject to liability for his obligations (Art. 2236 of NCC)

Ways: 1. Execution: - Subject to exempted property i.e. family home, support, 2. Attachment: - Property of debtor is reserved for satisfaction of pending judgment. - Only applicable if there is a pending litigation. - Writ of attachment can be issued by the court even before final judgment.

ACCION SUBROGATORIA - The action which the creditor may exercise in the place of his negligent debtor in order to preserve or

recover for the patrimony of the debtor the product of such action, and then obtain therefrom the satisfaction of his own credit.

- The creditor shall be substituted to all the rights the debtor has as against third person. - To exercise accion subrogatoria, a previous approval of the court is not necessary.

Ways: 1. Assignment - i.e. repudiated share in inheritance - If repudiation (debtor refuses to accept his inheritance) prejudices rights of third person, accion

subrogatoria can be filed by the third person. - If the inheritance is repudiated and the same was used to fulfill the obligation of the debtor, in case there

is excess, the same cannot be recovered by the heir. 2. Garnishment - Bank pays the debt of the depositor to the creditor, the debt paid will be subtracted to the deposit of the

depositor. ACCION PAULIANA

- Action for rescission of a rescissible contract is different from that contemplated in Art 1191. - Action to rescind or revoke acts which the debtor may have done to defraud them or acts which are

considered as fraudulent reductions of the properties of the debtor which constitute the guaranty for his debts.

- All acts of the debtor which reduce his patrimony in fraud of his creditors, whether by gratuitous or onerous title, can be revoked by this action.

Revocable actions: - Alienations of property - Payments of debts which are not due - Renunciations of rights such as the right of usufruct or an inheritance - Assignments of credit - Remission of debts - Renunciation of a prescription which has already been acquired. - Judicial acts such as when the debtor, in connivance with another, permits the latter to bring an action

against him and obtain a judgment by default or confession and such judgment is enforced against the debtors property.

Exception: - Payment of pre-existing obligations already due, whether natural or civil, cannot be impugned by this

action. CASO FORTUITO (FORTUITOUS EVENT)

- An event which takes place by accident and could not have been foreseen. - It includes unavoidable accidents, even if there has been an intervention of human element, provided

fault or negligence cannot be imputed to the debtor. - Remedies in case of breach are not available if non-performance is due to fortuitous event. - There is no essential difference between fortuitous event and force majeure; they both refer to causes

independent of the will of obligor. Force Majeure (fuerza mayor):

- Inevitable accident or casualty; an accident produced by any physical cause which is irresistible.


- The event which we could neither foresee nor resist. - The term generally applies, broadly speaking, to natural accidents.

Types of Caso Fortuito: 1. Ordinary: by Nature, such as earthquakes, storms, floods, epidemics and fires 2. Extra-ordinary: by the act of man, such as an armed invasion, attack by bandits, governmental

prohibitions, robbery, etc. - For an act of man to constitute fortuitous event, it is necessary that they have the force of an imposition

which the debtor could not have resisted. Requisite of a fortuitous event to exempt a man from liability:

1. The cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will.

2. It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid.

3. The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner.

4. The obligor must be free from any participation in the aggravation of the injury resulting to the creditor. Jurisprudence on fortuitous events:

- Employee strike on manufacturing companies is a fortuitous event. - Tire blowout is not a fortuitous event if:

1. Driver is over-speeding. 2. Common carrier accepted passengers beyond normal capacity.

- Tire blowout is a fortuitous event if: 1. Tires installed are new; in this case the product manufacturer should be blamed.

- Typhoon is not a fortuitous event especially for maritime vessels if: 1. Despite warning, vessels continues journey; in this case, it is negligence.

Instances where debtor is still liable despite fortuitous event: 1. Express stipulation between parties - The parties may expressly stipulate in their contract that the debtor shall be liable to the creditor, even if

the performance is rendered impossible by fortuitous event of force majeure. - The provision in a contract imposing liability even in case of fortuitous event should be clearly expressed. 2. Expressly imposed by law - Article 1169 par 2, where the debtor promises to deliver same subject to two parties then there is breach

of contract. Hence, even if there is fortuitous event, debtor is still liable. - Contract of depositum to innkeepers or hotel owners, the general rule is that they are not liable for

robbery. However, they can be liable if the robbery is committed by their employee. Robbery in this case is a fortuitous event.

- Contract of deposit of baggage on bus compartment, liable if the same is lost due to fortuitous event. 3. The nature of the obligation of the debtor requires the assumption of risk (aliatory contracts)

a. Governed by happening of future contingent event such as insurance to take care of contents of a warehouse. If the warehouse and the contents from the creditor are burned due to fortuitous event, the creditor is liable.

b. Forward or Commodities contract such as when debtor ordered 100 metric tons of sugar to creditor to be delivered next year, the creditor must deliver whether or not there is fortuitous event like pestilence. In case there is fortuitous event, creditor must outsource sugar to deliver.

Doctrine of Created or Assumer Risks: - Those who benefit from the maintenance or operation of dangerous machineries or facilities must

indemnify for the injuries or damages that they may cause.

- Exception: Unless the injury is caused by the inexcusable fault or negligence of the victim. TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS

- Rights and obligations are transferrable to heirs, assignees, and successors-in-interest. Exceptions: depending on the nature of the rights or obligations, some of them may be intransmissible.

1. Expressly stipulated in contract - If promissory note is negotiable in nature then it may be transferred to others upon endorsement and

negotiations, but not if it states pay to X only. 2. Expressly stated in law

a. In partnership, the death of a partner extinguishes the partnership since the same is purely personal and based on trust and confidence.

b. In agency, the death of principal or agent extinguishes the agency. c. In usufruct, death of usufructuary extinguishes the usufruct.

- Usufruct: real right whereby the right to possess, use and derive benefits and fruits of the property is given to one person while the naked ownership belongs to the other. d. In commodatum, the death of the borrower extinguishes the commodatum. The same cannot be

passed to the heirs and other successors. The obligation to pay on part of the heirs now becomes a natural obligation. Exception: Immediate member of the family

3. Nature of obligation makes it personal (personal in character or personal qualification) - In succession, the monetary obligation of the deceased is personal; heirs cannot be compelled to pay

because debt is chargeable only to the estate of the deceased. - Heirs are only liable for the said debts if they divide the estate of their parents without paying the debts

first. - Transfer of public office or other position which requires personal qualification is also not allowed.

KINDS OF OBLIGATIONS Classification of Obligations (Civil Code)

- (1) pure, (2) conditional, (3) with a term, (4) alternative, (5) joint or mancommunada, (6) solidary or several or in solidum, (7) divisible, (8) indivisible, and (9) with a penal clause.

PURE OBLIGATIONS

- When the obligation contains no term or condition whatever upon which depends the fulfillment of the obligation contracted by the debtor.

- Application: When the period originally given has been cancelled by mutual agreement of the parties, or the non-fulfillment of a condition resolves the period stipulated, the obligation must be considered as pure.

Limitation on immediate demandability: - The immediate demandability of a pure obligation, should not lead to absurd interpretations or

requirements impossible of instantaneous compliance. - Immediate demandability shall be based on purpose of obligation; creditor shall not abuse the same and

shall not defeat the intent of the obligation. Court fixes reasonable period:

- The concept of pure obligations is not violated when the court fixes a reasonable period within which the debtor should pay, inasmuch as this does not alter the character of the obligation as pure and immediately demandable.

- The creditor may resort to court action to fix a time for the performance, in case the debtor refuses on extra-judicial fixing of definite period.

OBLIGATIONS AND CONTRACTS 2011 Demand note as pure obligation:

1. A demand note is subject neither a suspensive condition nor a suspensive period 2. The demand is not a condition precedent, since the effectivity and binding effect of the note does

not depend upon the making of the demand: the note is binding even before the demand is made. 3. Neither does the demand constitute an implied suspensive period, since there is nothing to prevent

the creditor from making a demand at any time. CONDITIONAL OBLIGATIONS

- It is one which is subject to a condition. Condition, defined:

- Every future and uncertain event upon which an obligation or provision is made to depend. - It is a future and uncertain event upon which the acquisition or resolution of rights is made to depend by

those who execute the juridical act. Types of Condition:

1. Future and uncertain event - Futurity and uncertainty must concur as characteristics of the event - Death is not a condition: Although it is in future, the certainty of its happening makes it a term not a

condition. - Condition by will of party: The condition must be imposed by the will of a party and must not be a

necessary legal requisite of the act e.g. a promise to give a donation propter nuptias if the donee gets married cannot be considered conditional.

2. Past event unknown to the parties - What can be a condition is the future knowledge or proof of a past event unknown to the parties, but not

to the event itself. - The contract or obligation arises, not when the event happened or the fact came into existence, which

would be in the past, but when the proof of such fact or event is presented, which would be in the future. Classification of Conditions:

1. Suspensive and resolutory: the happening of the former gives rise to an obligation, while the happening of the latter extinguishes rights already existing.

2. Potestative, casual and mixed: according as to whether it depends upon the will of the party to the juridical relation, or upon chance, or partly upon the will of the former and partly upon chance or the will of a third person.

3. Divisible and divisible: according as to whether by its nature, by agreement or under the law, it can be performed in parts.

4. Conjunctive and alternative: according as to whether, when there are several, all of them or one must be performed.

5. Positive and negative: depending whether it is an act or omission. 6. Express and implied: according as to whether they are stated or merely inferred. 7. Possible and impossible: depending upon whether they can be fulfilled or not, the impossibility in the

latter case being either physical or legal. IMPOSSIBLE CONDITIONS

- The condition must not be impossible because impossibility annuls the entire obligation. - Exception: if the condition is impossible but the prestation is not to do, then the same is valid. - The impossibility of condition may either be physical or juridical.

1. Physical impossibility: - The condition is physically impossible if it is contrary to the law of nature - E.g. I will pay you if you can fly using your hands.

2. Juridical impossibility: - The condition is juridically impossible if it is contrary to law, morals, good customs, and public policy. - It is juridically impossible or illicit, not only when the act is prohibited by law, but also when it restricts

certain essential rights which are necessary for the free development of human activity, such as political rights, family rights, and constitutional rights. Examples: 1. The condition not to change domicile 2. The condition to change or not to change religion 3. The condition that a person shall not contract marriage

Illicit conditions: - Illicit character: The illicit (juridical impossible) character of the act is not determined by the act or fact in

itself, but by its effects upon one of the parties. - It is not the act, but the intention and its effect that determine whether the condition is illicit. - Example:

1. It is immoral to open a house of prostitution; but if a person sells a house under the resolutory condition that the vendee shall not open a house of prostitution, there is nothing immoral in the contract, which is valid.

2. If a house is leased to a tenant for P100 a month, with the condition that if the tenant reunites with his wife he shall pay three times as much as rent, the obligation is annulled.

Reason behind the Law: - One who promises something under a condition that is impossible or illicit knows that it cannot be

fulfilled, and, manifests that he does not intend to be bound. Hence, the effect is the nullity of the promise.

Scope of the Law:

- Applicable: Impossible or illicit conditions annul the obligations dependent upon them only when the conditions are positive or suspensive.

- Non-applicable: If the impossible or illicit condition is negative, it is simply considered as not written, and the obligation is converted into a pure and simple one.

- Applies only to contracts: The principle of the nullity of the obligation itself due to the impossibility or illicit character of the condition, applies only to contracts. It has no application to simple and remuneratory donations (to give something for reward of past or future services) and to testamentary dispositions.

Time of Impossibility: - In order that an impossible condition may annul the obligation, the impossibility must exist at the time of

the creation of the obligation; the supervening impossibility does not affect the existence of the obligation.

- On the same principle, if the condition was impossible when the obligation was constituted, the obligation remains void even if such condition subsequently becomes possible, unless the parties later agree again.

Illogical conditions: - Logical impossibility in an obligation, although the obligation itself is not impossible, is void. - The impossibility is in the obligation itself, which is affected by an intrinsic absurdity; hence, the

obligation is void. - E.g. I will deliver to you my house if it is totally destroyed.

OBLIGATIONS AND CONTRACTS 2011 Divisible Obligations:

- When the obligation is divisible, that part which is not affected by the impossible or unlawful condition shall be valid.

- E.g. X promises to pay Y the sum of P100 if Y locates Z and another sum of P500 if Y kills Z. In here, only the second part is void since it is the only one affected by the illicit condition.

SUSPENSIVE CONDITIONS

- If the suspensive condition happens, the obligation arises; thus, if the condition does not happen, the obligation does not come into existence.

- Also known as condition precedent or antecedent. - When contract is perfected: the contract is not perfected unless the condition is first complied with;

thus, if the right to rescind a contract is given to one of the parties within a certain period after the happening of a condition, the right of rescission cannot be exercised if the condition does not happen.

- If condition does not happen: if it becomes certain that the condition will not be fulfilled, the conditional creditor loses all hope of becoming a real creditor and he likewise loses the power to exercise the actions granted in Art. 1188 for the preservation of his rights.

Purpose for actions for preservation of the creditors rights 1. To prevent the loss or deterioration of the things which are the objects of the obligation by enjoining or

restraining acts of alienation or destruction by the debtor himself or by third persons. 2. To prevent concealment of the debtors properties which constitute the guaranty in case of non-

performance of the obligation. 3. To demand security if the debtor becomes insolvent 4. To compel the acknowledgment of the debtors signature on a private document, or the execution of the

proper public documents for registration so as to effect third persons. 5. To register the deeds of sale or mortgages evidencing the contract. 6. To set aside fraudulent alienations made by the debtor. 7. To interrupt the period of prescription, by actions against adverse possessors of the things which are the

objects of the obligation. Kinds of Suspensive Conditions

1. Positive Suspensive Conditions - Condition that some event will happen at a future determinate time. - Where no period stated: The intention of the parties is controlling, and the time shall be that which the

parties may have probably contemplated, taking into account the nature of the obligation. - E.g. I will give you my car if he resigns from office at the end of the year. 2. Negative Suspensive Conditions - Condition that some event will not happen at a future determinate time. - Where no period stated: same as positive suspensive conditions - E.g. I will give you my car if he does not resign from office at the end of this year.

Constructive Fulfillment: - Principle: A party to a contract may not be excused from performing his promise by the non-occurrence

of an event which he himself prevented. - Requisites:

1. Intent of the obligor to prevent fulfillment of the condition 2. Actual prevention of compliance

Intent to Prevent Compliance: - Any act imputable to the debtor, whether done with or without fraud or malice will suffice; in both cases

the debtor is responsible for his act. - Examples:

1. X promises to pay Y a certain sum if the latter, within a month, makes dikes. When work is started by Y, X deviates the flow of the water to enable Y to make dikes. But before Y has finished the work, X allows water to run again through the canal, thus preventing Y from finishing the work in the time agreed upon. The condition is deemed to be fulfilled in this case.

2. X ordered Y to stop working on the construction of the road, thus preventing the latter from fulfilling his part of the contract; the condition was deemed fulfilled because the obligor voluntarily prevented compliance therewith.

- When the act does not have the purpose to prevent: Where the act of the debtor, although voluntary, did not have for its purpose the prevention of fulfillment of the condition, it will not fall within the scope of this principle.

- Example: A prosecutes B for a crime committed against him, resulting in imprisonment of B and the non-fulfillment of condition by the latter. There is no constructive fulfillment in this case.

In Exercise of Right: - If in preventing the fulfillment of the condition the debtor acts pursuant to a right, the condition will not

be deemed as fulfilled. - Example: If the condition is to construct a building within one year, and the debtor stops the construction

because it is in violation of the city ordinances, the condition is not deemed fulfilled. Actual Prevention Compliance:

- There is constructive fulfillment of the condition only if the act of the debtor had in fact prevented compliance with the condition.

- Example: If the condition consists in Pedro making a piece of work according to specifications and delivering it to Juan, and Juan destroys the work after it has been finished but before delivery to him, there is no constructive fulfillment of the condition if it can be shown that the thing was not made in accordance with the specifications of the contract.

Effects of Non-fulfillment of Suspensive Condition: - If suspensive condition is not fulfilled, the very existence of the obligation of parties shall be eliminated.

Effects of Fulfillment of Suspensive Condition: - If condition is fulfilled, obligation is effective, enforceable and binding between parties, however the

happening of the suspensive condition does not dispense the requirement of demand. - The cause of action for the enforcement of the obligation accrues, and te period of prescription of the

action has to be computed from that moment. - Effects:

1. Retroactivity 2. As to Fruits 3. As to Loss 4. As to Deterioration 5. As to Improvement

Retroactivity of Obligation: - The effects of the obligation retroact to the moment when such obligation was constituted or created. - Juridical reason for retroactivity: The condition is only an accidental, and not an essential element of the

obligation. The obligation is constituted when the essential elements which give rise thereto concur. - Principle of retroactivity: A fiction is created whereby the binding tie of the conditional obligation is

produced from the time of its perfection, and not from the happening of the condition.


- Limitations of retroactivity: The application of retroactivity of conditional obligations is not absolute. It is subject to certain limitations dictated by justice and required by practicability or convenience e.g. if the thing is lost due to fortuitous event before the happening of the condition, then the debtor shoulders the loss because he is still the owner.

Contracts of Debtor:

- If the conditional obligation has for its object the delivery of a determinate thing, the debtor cannot, before the happening of the suspensive condition, make contracts disposing of or alienating or encumbering the thing, or otherwise creating a real right over the thing incompatible with the right of the creditor.

- In case of breach: If he does so, then all such contracts are abrogated and cease to have any effect upon the happening of the suspensive condition.

- Principle: Because of the retroactivity of the obligation, the creditor retains a superior right. - When third person acted in good faith: If the third person with whom the debtor has made a contract

pendente conditione acted in good faith, and the thing has been delivered to him, the happening of the suspensive condition will not serve to defeat his right of ownership.

- Accion reivindicatoria not applicable: When the third person is in good faith, the creditor cannot recover the thing by an accion reivindicatoria, because, there being no delivery to him, he does not have ownership over the thing. The debtor will be liable for damages to the creditor.

- When third person in bad faith: He may be compelled to deliver the thing to the creditor. Contracts of Creditor:

- If the creditor, before the happening of the condition, has already disposed of his expected right, such as a mortgage over the property to be delivered to him, the happening of the suspensive condition consolidates or makes effective the act performed pendente conditione.

Obligations to Do, Not to Do: - Judicial determination: In obligations to do and not to do, the courts based on their sound discretion,

shall determine the retroactive effect of fulfillment of the condition. - To allow or not: The court may determine to what date the retroactivity shall be allowed, or it may even

refuse to permit retroactivity, depending upon the circumstances of each case. The intent of the parties should be taken into account.

As To Fruits and Interests: - Not required: For reasons of practicability or convenience, the law does not require the delivery or

payment of fruits or interests accruing before the happening of the suspensive condition. - No retroactivity to right to fruits: The right to the fruits of the thing, therefore, is not within the principle

of retroactivity of conditional obligations. When reciprocal obligations:

- Rule: The fruits and interests pending the happening of the condition are deemed to mutually compensate each other.

- Example: X agrees to sell his land and Y promises to pay P20,000, and the agreement is subject to a suspensive condition.

- Upon happening of condition: X will only sell his land (the fruits that X may have received before the happening of the condition will not be delivered) and Y will pay the P20,000 (the interest that could have accrued on the sum of P20,000 is not to be paid)

- Conclusion: The fruits and the interests are considered as equivalent to and are made to offset each other.

When unilateral obligations:

- Rule: The fruits received by the debtor before the happening of the condition, are kept by him and are not delivered together with the thing upon the fulfillment of the condition.

- Reason: This is because the debtor does not receive anything from the creditor in a unilateral obligation. Exception to Rules: This rules with respect to the retention of the fruits and interests by the parties, must yield to the contrary intent or agreement of the parties themselves.

As to Loss:

- When it is lost: 1. When it perishes, such as when animal dies, or a house is destroyed completely by fire, or a crop is

washed away by flood, or fruits rot. 2. When it goes out of the commerce of man, such as when private land belonging to a municipality is

converted into a public plaza, or a thing is declared by law as contraband. 3. When it disappears in such a manner that its existence is unknown or it cannot be recovered, such

as when a ship sinks in the middle of the ocean, or a thing is stolen by unknown persons or is dropped somewhere in a forest and cannot be found.

- If debtors fault: If the lost is due to the fault of the debtor, he becomes liable for damages to the creditor upon the fulfillment of the condition (value of property + damages because of negligence or fraud).

- If not debtors fault: If the debtor is without fault, the obligation is extinguished, unless there is a stipulation in contrary

As to Deterioration:

- Definition: Deterioration is any reduction or impairment in the substance or value of a thing which does not amount to a loss.

- Application: The thing still exists at the time the condition is fulfilled, but it is no longer intact, or is less than what it was when the obligation was constituted.

- Example: Where a house is partly damaged, or part of a herd should die, or a portion of a stock of fruits should rot, there is deterioration.

- If deterioration debtors fault: If the deterioration is due to debtors fault then the creditor may either demand the thing or ask for rescission, with damages in either case.

- If deterioration not debtors fault: If the deterioration is not imputable to the debtor, he is not liable for any damages for such deterioration, and the creditor must accept the thing in its impaired condition.

- When considered as total loss: Under the Insurance Code, if the deterioration is or more to its total value, it is considered as total lost.

As to Improvement:

- Definition: Anything added to, incorporated in, or attached to the thing that is due, is an improvement. - Caused by nature or time: If improvement is caused by the nature of the thing or by time, such as

alluvion or deposits of soil on the edge of land bordering a river, or the natural growth of trees or plants on a piece of land, the improvement shall inure to the benefit of the creditor. This is in conformity with the principles of retroactivity of the effects of conditional obligations.

- At the expense of the debtor: If the improvement was at the expense of the debtor, he shall have the same rights as a usufructuary. 1. On necessary improvements: such as the expenses incurred for the preservation of the thing or

property, the debtor is entitled to reimbursement.


2. On useful improvements: such as those for the better use of the principal, the same may be appropriated by the creditor thus the he has the obligation to reimburse; but if not appropriated by the creditor, debtor shall remove and he will shoulder the expense of the removal.

3. On ornamental improvements: such as those for mere embellishment, the debtor has the right of removal and it is up to his decision as long as the removal will not destroy the principal or accessory.

- Removal does not cause injury: If the improvement, whether useful or for mere pleasure, can be removed by the debtor without damage to the thing due, then he may remove the same

- Removal causes injury: if the removal cannot be made without substantial injury to the thing due, then the improvement must be delivered together with the thing to the creditor without the latter paying any indemnity to the debtor.

- When both improved and deteriorated: If the debtor has caused deteriorations to the thing, which he has also improved at his expense, then the value of the improvements maybe set off against the damages for deteriorations.

Rights Pending Condition:

- Between the moment of the creation of the conditional obligation and the fulfillment of the suspensive condition, the creditor cannot enforce the obligation; his right during that period is a mere expectancy.

- On creditor: The creditor may file action in court to preserve contingent right such as filing an injunctive relief, to enjoin or stop any action of the debtor that will deprive the right of the creditor to the property.

- On debtor: The debtor may recover whatever he prematurely paid or delivered. Suspensive conditions in reciprocal obligations:

- In reciprocal obligations, the compliance of respective prestation is the suspensive condition of others performance unless there is stipulation that the performance will be at a specific time.

- If neither performs, no one can be held liable because they are both guilty. - If time of performance is not coincidence with another, then non-performance of one will lead to mora

solvendi or accipiendi. POTESTATIVE CONDITION

- One which depends upon the will of one of the contracting parties. - It is one which is in the power of one of the parties to realize or prevent. - E.g. I promise to pay P100, if you build a house for me in three months.

Other types of conditions: 1. Casual condition: - One which depends exclusively upon chance or other factors, and not upon the will of the contracting

parties. - E.g. I will give you my land if war breaks out next month. - A condition dependent upon the will of a third person is also included in this class. - E.g. I will give you P500, if I win the case which I have before the Supreme Court. 2. Mixed Condition: - One which depends upon the will of one of the contracting parties and other circumstances, including the

will of a third person. - E.g. I will give you a house, if you marry Maria.

Kinds of Potestative Condition

1. Simple Potestative Condition - It presupposes not only a manifestation of will but also the realization of an external act, such as if you

sell your house.

2. Purely Potestative Condition - It depends solely and exclusively upon the will, such as if I like it or if I deem it proper.

Effects of Potestative Condition: 1. It is only when the potestative condition depends EXCLUSIVELY upon the will of the debtor that the

conditional obligation is void. 2. When it depends partly on the will of the debtor and partly upon chance or the will of a third person

(mixed) the conditional obligation is valid. 3. When the fulfillment of the condition depends on the exclusive will of the creditor, it is valid. - Condition and obligation is void: In cases falling under this article, it is not only the condition that is void;

the whole obligation is void. - Applicable only to suspensive condition: The provision is applicable only when the condition is

suspensive, and cannot apply to resolutory conditions. - Potestative and resolutory condition is valid: A condition that is both potestative and resolutory may be

valid, even though the condition is made to depend upon the will of the obligor. The obligation in such case arises immediately, but the party who has made the reservation may resolve it when he wishes to.

Mixed Conditions: - When the condition depends, not only upon the will of the debtor, but also upon chance or the will of

others, the obligation is valid. - When fulfillment depends on third party: When the fulfillment of the condition does not depend upon

the will of the obligor, but on that of a third person who can in no way be compelled to carry it out, and it is found by the court that the obligor has done all in his power to comply with the obligation, the other party may be ordered to comply with his part of the contract.

RESOLUTORY CONDITIONS

- It extinguishes rights and obligations already existing; thus, the obligations and rights already exist, but under the threat of extinction upon the happening of the resolutory condition.

- Also known as condition subsequent. - If condition does not happen: the creditors rights become absolute.

Provoking Resolutory Condition: - When the condition is resolutory but not dependent on the will of the debtor, and he unjustifiably

provokes or produces the condition, which would not have happened without his doing so, it will be considered as not having been fulfilled, and there will be no extinguishment of rights.

- Principle: Debtor cannot be excused from compliance by the occurrence of an event which he himself brought about, unless such possibility is clearly permitted by the contract.

OBLIGATIONS WITH SEVERAL OBJECTS

1. Conjunctive obligation 2. Alternative obligation 3. Facultative obligation

CONJUNCTIVE OBLIGATIONS

- Is one where the debtor has to perform several prestations; it is extinguished only by the performance of all of them.

ALTERNATIVE OBLIGATIONS

- Is that, several objects being due, the fulfillment of one is sufficient, determined by the choice of the debtor who generally has the right of election.


- The creditor cannot be compelled to receive part of one and part of the other undertaking. Alternative and facultative obligations, distinguished:

1. The loss of one of the things due affects the obligation in alternative obligations; but in facultative obligations, the loss of that which may be given as substitute does not affect the obligation.

2. In alternative obligations, the election may be granted to the creditor; in facultative obligations, never. 3. The loss of one of the things in alternative obligations does not extinguish the obligation; in facultative

obligations, the loss of principal obligation, will extinguish the whole obligation. Right of Choice:

- General rule: In alternative obligations, the right belongs to the debtor. - Exception: It may belong to the creditor when such right has expressly, never impliedly, been granted to

him. The choice may also be expressly entrusted by the parties to a third person. - Limitations: 1. The right to choose is indivisible. The debtor cannot choose part of one prestation and part of another. 2. The debtor cannot choose unlawful or impossible undertakings. - The presence of such impossible undertakings does not annul the obligation provided that there are

other lawful and possible objects. 3. The debtor cannot select prestations which could not have been the object of the obligation.

Need for notification of choice: - The debtor should notify the creditor of his choice and the same may be in any form provided it is

sufficient to make the other party know that the election has been made. - Without the notification, the creditor may not be liable for mora accipiendi. - Purpose of notification: For creditor to check if the chosen prestation is in compliance of the obligation

such as the same is one of the alternatives or not impossible. - Effect of notification: Once choice is communicated and accepted, the same is irrevocable thus the

obligation ceases to be alternative and the same becomes a SIMPLE obligation. - Consent despite irregularity: When the debtor has chosen a prestation which could not have been the

object of the obligation, the creditors consent would bring about a NOVATION of the obligation. Plurality of Subjects:

- If joint: The consent of all is necessary to make the selection effective. - If solidary: Provided that there is not stipulation to the contrary, the choice by one will be binding

personally upon him only but not as to the others. Error as to Obligation:

- Ignorance of alternatives: When the debtor performs one of the obligation, believing that he has a simple obligation, then there is not declaration of the selection, nor a binding performance of the obligation.

- Effect: There is a payment of what is not due, and the debtor can recover the same, in accordance with the provisions on quasi-contracts. But

Delay in Making Choice: - The right to choose is not lost by mere fact that the party entitled to choose delays in making his

selection. - No selection before filing of action: The law is silent. But applying the German theory, the debtor cannot

paralyze the remedy of the creditor by refusing to make a selection. If he does not select, then the choice can be made for him by the creditor.

Liability for Loss of Alternatives - Obligation Becomes Simple: If all the prestations, except one, are impossible or unlawful, it follows that

the debtor can choose and perform that only one. - If impossibility due to creditor:

1. The debtor may elect to rescind the contract and recover damages. 2. The debtor may elect to perform the prestations remaining because rescission does not take place

automatically but at his option - Illustration: The obligation is to build a house on the lot or construct a road. If the debtor sells the lot,

thus making it impossible for the debtor to build the house then the debtor may construct the road or rescind the contract plus damages.

Loss by Fault of Debtor: - When ALL the prestations become impossible through the debtors fault, he will become liable for

damages under Art. 1204. Effect of Fortuitous Event:

- All prestations become impossible due to fortuitous event: the obligation is extinguished and the debtor is not liable for any damages.

- One prestation left after fortuitous event: If all other prestations became impossible due to fortuitous event except for one, the debtor should perform the last remaining prestation. If this last one became impossible due to debtors fault, he will be liable for damages based on the value of the last prestation.

Creditors Right of Choice: - Until the creditor communicated his choice to the debtor, the responsibility of the debtor shall be

governed by the following rules (Art. 1205); 1. If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering

that which the creditor should choose from among the remainder, or that which remains if only one subsists.

2. If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages.

3. If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages.

Selection by Creditor: - His selection takes effect from the moment it is communicated to the debtor. - Modes of selection: expressly or tacitly - Tacit selection: When the creditor accepts a prestation offered by the debtor, or brings an action for the

enforcement of one of the prestations. FACULTATIVE OBLIGATIONS

- Is that, only one thing is due, but the debtor has reserved the right to substitute it with another. - The right to substitute should be reserved by the debtor during the establishment of the principal

obligation. - The right to substitute cannot be exercised at sole will of the debtor.

Distinguished from Alternative: 1. As to contents of obligation: - In alternative, there are various prestations all of which constitute parts of the obligation; while in

facultative, only the principal prestation constitutes the obligation, the accessory being only a means to facilitate payment.

- As such, before the debtor has made his choice, the creditor in an alternative obligation must demand all the prestations in the alternative, leaving the debtor to choose; but in facultative, the creditor can demand only principal prestation.


2. As to nullity: - In alternative obligations, the nullity of one prestation does not invalidate the obligation, which is still in

force with respect to those which have no vice; while in facultative, the nullity of the principal prestation (unlawful or outside the commerce of man) invalidates the obligation, and the creditor cannot demand the substitute even when this is valid.

3. As to choice: - In alternative, the right to choose may be given to the creditor; while in facultative, only the debtor

extinguishes the obligation. 4. As to effect of loss: - In alternative, only the impossibility of all prestations without fault of the debtor extinguishes the

obligation; while in facultative, the impossibility of the principal prestation is sufficient to extinguish the obligation, even if the substitute is possible.

When Substitution Effective: - It is effective from the time the debtor communicates to the creditor that he elects to perform the

substitute prestation. - When substitution communicated: From this moment, the substitute prestation becomes the only

prestation that is due. - Principal prestation becomes impossible after substitution is chosen and communicated: If the principal

prestation thereafter becomes impossible, even by fortuitous event, the debtor would still need to perform the chosen substitution as his obligation became simple the moment he elected to perform the substitute.

ALTERNATIVE FACULTATIVE

Obligation Due

(1) Various things are due, but the giving of one is sufficient.

Only one thing is principally due, and it is that one which generally is given, but the other (the substitute) may be given, to render payment or fulfillment easy.

Void Prestation

(2) If one of the prestations is illegal, the others may be valid and the obligation remains.

If the principal obligation is void, then there is no necessity of giving the substitute. The nullity of the principal carries with it the nullity of the accessory or substitute.

Impossibility of Prestation

(3) If it is impossible to give all except one, that last one must still be given.

If it is impossible to give the principal, the substitute does not have to be given; if it is impossible to give the substitute, the principal must still be given.

Right to Choose

(4) The right to choose may be given either to debtor or creditor.

The right of choice is given only to debtor.

COLLECTIVE OBLIGATIONS

1. Joint Obligations 2. Solidary Obligations

JOINT OBLIGATIONS - One in which each of the debtors is liable only for a proportionate part of the debt, and each creditor is

entitled only to a proportionate part of the credit. - Each creditor can recover only his share of the obligation, and each debtor can be made to pay only his

part. - Mancomunada, mancomunada simple, pro rata, we promise to pay with several signatures,

proportionate Joint Character Presumed:

- When the persons are liable under a contract or judgment, and no words appear in a contract under the same, the presumption is that their obligation is joint.

Effect of Joint Liability: 1. The demand by one creditor upon one debtor, produces the effects of default only with respect to the

creditor who demanded and debtor whom the demand was made, but not with respect to the other debtors.

2. The interruption of prescription by the judicial demand of one creditor upon a debtor, does not benefit the other creditors nor interrupt the prescription as to other debtors.

3. A partial payment or acknowledgement made by one of several joint debtors does not stop the running of the statute of limitations as to the others.

4. The vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation or rights of the others.

5. The insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize creditor to demand anything from his co-creditors.

6. In joint divisible obligation, the defense of res judicata is not extended from one debtor to another. 7. Defenses which are purely personal to a debtor cannot be availed by his co-debtors.

Joint Obligations Created By: 1. Stipulations 2. Presumptions

SOLIDARY OBLIGATIONS

- One which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation.

- Each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in full. - Mancomunada solidaria, joint and several, in solidum, I promise to pay with several signatures,

individually and collectively, individually liable, individually and jointly liable, juntos o separadamente, each will pay the whole value.

Solidary Obligations Created By: 1. Express stipulations 2. Expressed by law

a. Co-participants in a crime b. Captain and owner of a vessels operating common carrier c. Joint tortfeasors d. Officers of company for insider trading or manipulation of prices e. Directors or trustees for violation of rights of shareholder or member of corporation f. Insurance company and agent for fraudulent denial for just insurance claim

3. Expressed by final judgments 4. From nature of obligation i.e. Arts. 19-22 5. Jurisprudence

OBLIGATIONS AND CONTRACTS 2011 Solidarity and Indivisibility, distinguished:

SOLIDARITY INDIVISIBILITY

Refers to (1) Refers to tie between parties

Refers to nature of obligation

Number of Creditor-Debtor (2) Needs at least two debtors or creditors

May exist even if there is only one debtor and only one creditor

Effect of Fault of One (3) The fault of one is the fault of others.

The fault of one is not the fault of others.

- Indivisibility refers to the prestation which is not capable of partial performance, while solidarity refers to the legal tie or vinculum defining the extent of liability.

Kinds of Solidarity: 1. Active Solidarity: one that exists among creditors or obligees 2. Passive Solidarity: one that exists among debtors or obligors 3. Mixed Solidarity: one that exists on the part of debtors and creditors

ACTIVE SOLIDARITY OR MUTUAL AGENCY - Essence: The essence of active solidarity consists in the authority of each creditor to claim and enforce

the rights of all, with the resulting obligation of paying everyone what belongs to him. - Only Mutual Representation: There is NO merger, much less a renunciation of rights, but only mutual

representation. - Purpose: Mutual agency extends ONLY to acts which are beneficial and NOT to those which are

prejudiced. - Extinguishment without consent: If extinguishment is made by a solidary creditor without consent or

ratification from his co-creditors, the former is liable for the latters respective shares. Effects of Mutual Agency:

1. Since it is a reciprocal agency, the death of a solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together.

2. Each creditor represents the others in the act of receiving payment, and in all other acts which tend to secure the credit or make it more advantageous.

- Hence, if he receives only a partial payment, he must divide it among the other creditors. - He can interrupt the period of prescription or render the debtor in default, for the benefit of all other

creditors. 3. One creditor, however, does not represent the other in such acts as novation (even if the credit

becomes more advantageous), compensation and remission. - In this case, even if the debtor is released, the other creditors can still enforce their rights against the

creditor who made the novation, compensation or remission. 4. The credit and its benefits shall be divided equally among creditors, unless otherwise stipulated.

- Hence, once the credit is collected, an accounting and distribution of the amount collected should follow. 5. The debtor may pay to any solidary creditor, but if a judicial demand is made on him, he must pay

only to the plaintiff. - If the debtor pays to another creditor, the debtor may pay again to the debtor who sue him and collect

the previously paid amount from another debtor following the principle of solution indebiti. - Or the creditor who made the demand, may acknowledge the payment of debtor to co-creditor; the

obligation is then extinguished. 6. Each creditor may renounce his right even against the will of the debtor, and the latter need not

thereafter pay the obligation to former.

Creditor cannot assign his rights without others consent: - Mutual agency implies mutual confidence which may take into account the personal qualifications of

each other. Hence, it is only just to require consent of the others when one transfers his rights to another.

- Effect of Unauthorized Transfer: Since such assignment cannot be made, it produces no effect whatsoever; the co-creditors and the debtor or debtors are not bound thereby, and the assignee cannot be regarded as a solidary creditor.

- Example: A payment made by the debtor to such an assignee would be a payment t

Oblicon Reviewer PDF

Documents

Transcript of Oblicon Reviewer PDF